When workers expect less inflation than actually occurs,
A) there is a movement down the short-run Phillips curve.
B) the Phillips curve becomes vertical.
C) the long-run Phillips curve shifts to the right.
D) there is a movement up the short-run Phillips curve.
E) the short-run Phillips curve shifts to the left.

Question

Quizplus · Accepted Answer

When workers expect less inflation than actually occurs, there is a movement up the short-run Phillips curve. This is because workers initially supply more labor at the prevailing wage rate, leading to lower unemployment and higher output. As a result, firms face upward pressure on their costs, which they pass on to consumers in the form of higher prices, leading to higher inflation. This shift up the short-run Phillips curve reflects a higher inflation rate for any given level of unemployment.

When Workers Expect Less Inflation Than Actually Occurs